ESSU Research Report No. 7: Alternative to Private Finance of the Welfare State: A global analysis of Social Impact Bond, Pay-for-Success & Development Impact Bond Projects, by Dexter Whitfield

The first detailed critical analysis of the growing global market in social impact bond projects and reveals that they are the latest new ‘buy-now-pay-later’ scheme to privatise public services and the welfare state. Details 30 financial and public policy flaws in these projects. Proposes an alternative strategy consisting of government and public sector plans for early intervention and prevention; Public Service Innovation and Improvement Plans at departmental or service level; and trade union/community alliances to develop strategies and scope for transnational action. Published jointly by ESSU and the Australian Workplace Innovation and Social Research Centre, University of Adelaide.

Investors select social needs that are profitable, but ignore needs that are not. Address the symptoms, but not the causes of poverty and inequality.
Privatise the design, finance, service delivery, contract management, monitoring and evaluation of projects. Extend markets and market forces further into the welfare state that could ultimately threaten social rights.
Monetizes the value of outcomes by agreeing a sum of money for each outcome. Private and institutional investors will increasingly replace ‘social investors’.
Make social need dependent on private markets and decrease publicly provided services. Democratic accountability, participation and transparency are eroded by the contract culture.
Blur important distinctions between public, non-profit and private services. Risks are borne by government, service users, staff and contractors, not just private investors.
Commodification and monetising early intervention and prevention will have a negative impact for women in social reproduction, in training and employment and will intensify gender inequality. Creates a new source of accumulation for private investors in public services and the welfare state with annual rate of return of up to 15% – 30% or more.
Employees have private/non-profit sector terms and conditions, less job security and trade union representation. Performance-based contracts lead to commercialisation of non-profit and voluntary sector organisations.
Private finance, alternative providers, making markets, competition, privatisation, deregulation and public grants and subsidies are the components of neoliberal public management. A secondary market is likely to emerge to trade in social impact bond investments that could be transferred to offshore tax havens following the PFI/PPP model.
Do not deliver additional resources and only delays public spending when private investors are repaid with profit. Banks and financial institutions will increase their power to shape public policies.
Project organisation is neoliberal innovation, but activity is rarely innovative – they apply proven methods to new population groups. High set-up or transaction costs including a coterie of consultants, financial advisers, lawyers and evaluators.
Lack of evidence of savings in public spending, which are only valid if the full government cost of reconfiguring public services and infrastructure legacy costs are included. Early intervention and prevention should be part of public sector initiatives and integrated with core services.
Exclusive focus on outcomes despite inputs, processes (and outputs in some cases) having a direct effect on the quality of public services. Claims of ‘social or public value’ or ‘public benefit’ are vague and not meaningful and conceal class interests.
The comparison of outcomes with unimproved public service provision is fundamentally flawed and designed to exaggerate the effect of social impact bonds. Imposes a new set of power relations between private investors, intermediary organisation, contractors, consultants, evaluator and the government or public body.
Exploit the most vulnerable, poorest and others dependent on public services and the welfare state. Deliberately exclude and deny there are viable and more effective public sector alternatives.
Advocates make assertions about ‘government failure’ when market failure is the cause of financial and economic crises. Development impact bond model threatens to impose more profiteering and privatisation in the global south.